Real GDP surged by +7.7% y/y in Q1 2018 (up from +7% in the previous quarter), driven by a strong rise in government consumption (+16.8% y/y), investment (+14.4% y/y) and a solid rise in private consumption (+6.7% y/y). Inflation rose to +4.6% in April (from +4.3%). Leading indicators suggest continued but slower momentum. The Manufacturing PMI points to firm expansion in May even though it edged down to 51.2 points (from 51.6 in April). The Services PMI dropped to 49.6 in May (from 51.4 in April) due to a stagnation of new orders and rising input costs in the context of rising oil prices and a weak INR. Against this background, the Central Bank decided to raise its policy rate to 6.25% (from 6%) today. On the fiscal side, a slowing of the consolidation process (central deficit expected at -3.3% GDP in FY2018-19, up from the initial plan of -3% GDP) should provide some boost to growth. Euler Hermes expects real GDP growth to rise to +7.3% in FY2018-19 (from +6.7% in FY2017-18).